No turning back on â€˜rationalisationâ€™ of expenditure even if oil prices rise

March 10, 2016, 8:29 am

During a meeting between the parliament’s Financial and Economic Affairs Committee and the representatives of Kuwait Chamber of Commerce and Industry (KCCI) on Wednesday, the government included some austerity measures and initiatives in the series of legislative amendments that were recently submitted to the National Assembly in terms of the ongoing dwindling of the oil prices. According to an informed source, the initiatives were taken to reduce expenditures and stop wastage even if oil prices rise again to the previous highest level.

He revealed that these measures are linked to the removal of subsidies of fuel, electricity and water. Meanwhile, discussions regarding methods to cover budget deficits has resumed again. Deputy Prime Minister, Minister of Finance and Acting Minister of Oil Anas Al-Saleh disclosed that the Public Loan Management Committee has announced the decisions and other necessary details with required transparency.

He said funding the deficit will include deductions from the public reserve fund and floating of local bonds after the local banks affirmed their ability to be part of the process and for issuing bonds in the international markets. Al-Saleh revealed that the government will refer the economic and fiscal reforms to the National Assembly next week, indicating that streamlining subsidies is a part of the reform and a focal point of the document.

He refuted understanding of a section of the society concerning classifications done by Moody’s Agency, explaining that Moody’s classification of 18 countries among which 12 are oil producing countries including Kuwait, were still under review.

When asked about privatizing oil companies, Al-Saleh said the service companies such as Kuwait Oil Tanker Company (KOTC) and Kuwait Petroleum International (KPI) can be privatized but the government companies cannot be privatized as per the law and Constitution of Kuwait. He indicated that Kuwait is thinking about presenting some oil service companies in the bourse for subscription.

Banks gauge bond capacity
Kuwait is talking to advisers about a potential sovereign bond issue, and is considering both domestic and international bond issues, Finance Minister Anas Al- Saleh said on Wednesday. Saleh, speaking to reporters on the sidelines of a financial conference, didn’t elaborate.

The government has begun drawing down its financial reserves to cover part of a budget deficit caused by low oil prices, but it also wants to begin issuing debt to limit the speed of the drawdown and develop the local financial market.

Hamad Abdulmohsen Al-Marzouq, chairman of major banking firm Kuwait Finance House, told the conference that the government had requested a report from local banks on their ability to finance the deficit, and on whether there was enough liquidity in the banking system.

The local banks then submitted a study to the finance ministry and central bank, estimating the banks had the capacity to finance between 3 billion and 5 billion dinars ($10 billion to $16.7 billion) over the next three years, Marzouq said. The ministry projected in January that the government would run a deficit of 12.2 billion dinars in the next fiscal year starting on April 1, nearly 50 percent higher than the deficit estimated for the current year, after contributions by the government to the sovereign wealth fund.